The World Bank Group (WBG) is strengthening its partnerships with upper-middle-income countries and high-income countries to leverage private and public finance, and to create knowledge and new solutions based on the experiences of graduates for the benefit of clients.
... See More + Malaysia is a leading contributor to a stronger ecosystem of new research and knowledge, through the embedding of the Malaysia Experience in global discussions on development. This digest is widely disseminated to development practitioners and policy-makers in the East Asia and Pacific region and internally within WBG. The authors begin this issue with their experience with the Hub as they enter their second year, and how it is a pioneering example of how the Bank is leveraging knowledge for development finance. Then, the authors move into an update on the Bank’s involvement in the concluded World Urban Forum 9 in Kuala Lumpur. The authors also delve into topics like Malaysia’s lessons from the Asian Financial Crisis. Other articles include South-South exchanges on Malaysia’s Small and medium enterprise (SME) development, education, land administration reform, and a rich selection of pieces from the Development economics teams based in the Hub.
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State and local debt and debt of quasi-public agencies have grown in importance. Three structural trends have contributed to the rising share of subnational finance, including subnational debt, as a share of general public debt.
... See More + First, decentralization in many countries has given subnational governments (SNGs) certain spending responsibilities, revenue raising authority, and the capacity to incur debt. With sovereign access to financial markets, SNGs are seeking access to these markets as well. Second, rapid urbanization in developing countries requires large-scale infrastructure financing to help absorb influxes of rural populations. Third, the subnational debt market in developing countries has been going through a notable transformation. Private capital has emerged to play an important role in subnational finance, and subnational bonds increasingly compete with traditional bank loans. The 2008-09 global financial crises has had a profound impact on subnational finance across countries, as a result of slowing economic growth, the rising cost of borrowing, and deteriorating primary balances. The impact has been mitigated in various countries by fiscal stimulus, monetary easing, and increasing fiscal transfers. However, looking forward, pressures on subnational finance are likely to continue, from the potentially higher cost of capital, the fragility of global recovery, refinancing risks, and sovereign risks.
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Although Brazil has become one of the largest economies in the world, it remains among the most closed economies as measured by the share of exports and imports in gross domestic product.
... See More + This feature cannot be explained simply by the size of Brazil's economy. Rather, it is due to an economic structure reliant on domestic value chain integration as opposed to participation in global production networking. It also reflects more generally an export base that shows lack of dynamism. Opening up and moving toward integration into global value chains could produce efficiency gains and help Brazil address its productivity and competitiveness challenges.
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Emerging market economies (EMEs) are making important strides in developing long-term finance capital market vehicles to support investment in strategic areas such as infrastructure.
... See More + However, since last year, EMEs have suffered from big shifts in terms of market sentiment. While EMEs prospects were clearly overhyped in the wake of the crisis, the bleak forecasts that dominated headlines in the second half of last year were similarly exaggerated. There are still a number of factors indicating that EMEs role in the global economy will continue to grow, just not as rapidly or dramatically as previously thought.
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Some analysts believe that the commodity price boom of the new millennium has played itself out. However, natural resource based commodity prices (with the exception of shale gas and its downward pressure on United States (U.S.) natural gas prices) have remained high by historical records over the last few years, despite the feeble global economic recovery.
... See More + The commodity price spike that started at the end of the 1990s has not been significantly affected by the global downturn, with average prices similar to 2008 levels. Indeed, commodity prices have occasionally shown signs of reviving more quickly than the global economic output level. So the question is: have one entered a phase of descending commodity prices? This note argues that it may be too soon to say that the commodity super-cycle phenomenon is a thing of the past.
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Over the last few years, Brazil's growth has significantly decelerated. Accompanying this slowdown, a change in commentary on Brazil's economic future has emerged, and is reflected in a recent ratings downgrade of Brazilian sovereign paper and an overall much-bleaker growth outlook both for the near and medium term.
... See More + This note examines three contributing factors to this change in sentiment: macroeconomic management, the external environment, and microeconomic fundamentals. Among these, this note argues that the relative lack of progress on the microeconomic reform agenda has been far more detrimental to the growth outlook than either the credibility cost of recent macroeconomic management or the negative influence of a less supportive external environment. Against this backdrop, the recent ratings downgrade is not inherently negative: while Brazil is not about to slide down a slippery slope of macroeconomic mismanagement or on the verge of an externally powered economic meltdown, the downgrade can serve as a call to action for government to enact the necessary structural reforms to energize and sustain productivity growth.
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In the aftermath of the recent global financial crisis, advanced economies have continued to experience sluggish growth. Is this slow post crisis growth the result of a policy response that was overly reliant on monetary policy, which ran into the zero interest rate lower bound before growth, was restored?
... See More + Looking deeper, is secular stagnation, which is related to the zero lower bound and was recently brought to the fore by Larry Summers, another potential cause for advanced economies' failure to return to pre-crisis growth levels? This note seeks to answer these questions as well as identify what alternative policies may be pursued by advanced economies to escape secular stagnation, should stagnation proponents be proven correct. After a brief review of secular stagnation, Summers' hypothesis is tested through a review of academic literature and opinion pieces. However, the secular stagnation theory is not without its critics; moreover, there is a debate between "Keynesian versus Schumpeterian" economists, which can help to shed light on the medium-term post crisis outlook.
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After experiencing an initial period of rapid growth, many developing countries have fallen into the middle-income 'trap', stuck between low-wage, low-technology markets and high-income, innovation-based developed economies.
... See More + As previous literature has demonstrated (Agenor and Canuto 2012), public policies aimed at improving access to advanced information and telecommunications (ITC) infrastructure, protecting intellectual property rights, and reforming labor markets to reduce rigidities can help developing countries avoid such low-growth equilibrium. As a complement to these policies, which create an enabling environment for learning and innovation, this note draws on more recent work (Agenor and Canuto 2014) that emphasizes the role of access to finance in supporting the innovative activities that in turn can help countries climb the ladder to high-income status. In particular, this note argues that inadequate access to finance has an adverse effect on innovation, directly, through the financing of fewer research and development (R&D) projects, and also indirectly, as fewer individuals may choose to invest in the skills necessary to work in R&D fields. These dual effects highlight the need for public policies aimed at alleviating credit market imperfections to promote the production of ideas and increase the incentives for workers to invest in higher skills. An empirical comparison of countries in East Asia that were able to escape the middle-income trap with less successful counterparts in Latin America provides a poignant example of how access to finance influences innovation outputs and long-term economic growth.
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This paper studies interactions between access to finance, product innovation, and labor supply in a two-period overlapping generations model with an endogenous skill distribution and credit market frictions.
... See More + In the model lack of access to finance (induced by high monitoring costs) has an adverse effect on innovation activity not only directly but also indirectly, because too few individuals may choose to invest in skills. If monitoring costs fall with the number of successful projects, multiple equilibria may emerge, one of which, a middle-income trap, characterized by low wages in the design sector, a low share of the labor force engaged in innovation activity, and low growth. A sufficiently ambitious policy aimed at alleviating constraints on access to finance by innovators may allow a country to move away from such a trap by promoting the production of ideas and improving incentives to invest in skills.
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The World Bank Research Observer is intended for anyone who has a professional interest in development. Observer articles are written to be accessible to nonspecialist readers; contributors examine key issues in development economics, survey the literature and the latest World Bank research, and debate issues of development policy.
... See More + This edition has the following headings: (i) inequality in China : an overview; (ii) can civil society overcome government failure in Africa?; (iii) what are we learning from business training and entrepreneurship evaluations around the developing world?; (iv) population, poverty, and climate change; and (v) orderly sovereign debt restructuring : missing in action! (and likely to remain so).
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An orderly sovereign debt restructuring should place the debtor nation’s public debt on a sustainable trajectory while minimizing procrastination and contagion.
... See More + However, the experiences with the debt crisis of the 1980s, Russia 1998, Argentina 2001, and Greece 2010 indicate that orderly debt restructurings remain elusive, even with high-powered official intervention. When solvency problems are present, the chances of success increase if official money is lent at the risk-free rate, reflecting its low risk, and if private creditors receive an upfront haircut. The paper examines the obstacles, which include moral hazard, difficulty in distinguishing between solvency and liquidity crises, and the political economy resistance to upfront haircuts. Orderly sovereign debt restructurings are likely to remain elusive notwithstanding recent evidence that the official mindset may be changing.
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The 2008 financial crisis has emphasized the importance of macro financial linkages. In the financial sector, attention is now focusing on macro prudential regulations that are geared toward the stability of the financial system as a whole.
... See More + In the macro arena, the recognition that price stability was not sufficient to guarantee macroeconomic stability and that financial imbalances developed despite low inflation and small output gaps has highlighted the need for additional tools (macro prudential policies) to complement monetary policy in countercyclical management. Emerging markets (EMs) face different conditions and have key structural features that can have a bearing on the relevance and efficacy of policy measures. This note discusses the challenges of dealing with macro financial linkages and explores the policy toolkit available for dealing with systemic risks, particularly in the context of EMs.
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The global financial crisis and shrinking aid flows have led to decreased availability of long-term debt finance for Least Developed Countries (LDCs), particularly for infrastructure.
... See More + On the other hand, resource-related foreign direct investment (FDI) in those countries has remained substantial. This note presents two models in which the natural resource wealth of LDCs has been used as a means to overcome the dearth of finance sources necessary for non-resource-related investments, and outlines country-specific factors that can tilt the balance between risks and opportunities to the latter.
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Confidence in combining inflation-targeting-cum-flexible-exchange-rate regimes with isolated micro prudential regulation as a means to guarantee both macroeconomic and financial stability has been shattered by the scale and synchronization of the asset price booms and busts that preceded the global financial crisis.
... See More + It has now become clear that if monetary policy makers and prudential regulators are to succeed in achieving stability, there can be no complacency regarding asset price cycles. This note explores some of the ways in which monetary policy can address asset price booms and busts through its integration with macro prudential regulation.
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State and local debt and the debt of quasi-public agencies have grown in importance as a result of fiscal decentralization, rapid urbanization, and the increasing role played by private capital.
... See More + However, with debt comes the risk of insolvency. This note outlines a set of aligned fiscal incentives that should be in place, as well as the design issues to be considered in debt restructuring frameworks. This note also suggests some broad lessons extracted from several country experiences with subnational debt restructuring, insolvency frameworks, and debt market development. This note suggest a range of possible lessons to consider when designing reforms to align fiscal incentives and develop a robust subnational debt framework that can be used to effectively manage the insolvency risks that will inevitably accompany the new dynamism of subnational finance.
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This note studies the long-run impacts of policies aimed at fostering gender equality on economic growth in Brazil. After a brief review of gender issues in Brazil, this note describes a framework for quantifying the growth effects of gender-based policies in developing economies.
... See More + The analysis is based on a computable overlapping generations (OLG) model that accounts for the impact of access to infrastructure on women's time allocation, as well as human capital accumulation, inter- and intra-generational health externalities, and bargaining between spouses. The model is calibrated for Brazil and is used to conduct two experiments, the first involving improved access to infrastructure, and the second a reduction in gender bias in the marketplace. The key lesson of these experiments, is that fostering gender equality, which may depend significantly on the externalities that infrastructure creates in terms of women's time allocation and bargaining power, can have a substantial impact on long-run growth in Brazil.
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Brazilian exports of goods and services have grown sharply in recent years, with sales nearly three times higher in 2010 than in 2000. However, Brazil faces considerable competitiveness challenges: its export performance depends mostly on favorable geographical and sector composition effects.
... See More + Such challenges increased after the recent global economic crisis. A recent slowdown in industrial exports, production, and investments seems related to supply-side difficulties stemming from a wide range of inefficiencies and rising costs, rather than insufficient demand. Although a stronger currency is one of the factors behind the lower competitiveness of Brazil's manufacturing exports, sluggish productivity performance, lack of dynamism at the firm level, and a real wage uptrend seem to explain a significant part of the overall loss of competitiveness. This diagnostic reinforces the urgency of resuming the agenda of microeconomic reforms, increasing the investment-to-Gross Domestic Product (GDP) ratio, and advancing toward better-skilled human capital.
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Confidence in combining inflation-targeting-cum-flexible-exchange-rate regimes with isolated microprudential regulation as a means to guarantee both macroeconomic and financial stability has been shattered by the scale and synchronization of asset price booms and busts that preceded the current global financial crisis.
... See More + This paper has a two-fold purpose. On the one hand, it explores the implications and challenges of acknowledging the need for coordination between monetary policies and macroprudential regulation. On the other, it points out specific challenges currently faced by central bankers in emerging economies, as they cope with policy and regulatory coordination in a context of debt overhang and unconventional monetary policies in advanced economies.
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This note examines in detail Brazils export performance over the past 15 years, focusing not only on growth and composition, but also on different performance dimensions, including diversification, sophistication, and firm dynamics.
... See More + The analysis uses international comparisons to better situate the Brazilian performance, and explores different databases, including firm-level data recently published by the World Bank. The note uses a recent diagnostic toolkit developed by the World Bank in order to suggest some hypotheses about the factors that have been inhibiting exports and industrial production expansion. Among the latter, it is noted how service sectors, as the largest beneficiaries from favorable terms of trade, accommodated larger wage increases and "exported" cost pressures to other sectors of the economy. Furthermore, although a stronger currency can be appointed as one of the elements behind the lower competitiveness in Brazilian exports, sluggish productivity performance and a real wage uptrend explain a significant part of the overall loss of competitiveness. This diagnostic reinforces the importance of resuming the agenda of microeconomic reforms, increasing the investment-to-gross domestic product ratio, and advancing toward better-skilled human capital.
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This paper studies the long-run impact of policies aimed at fostering gender equality on economic growth in Brazil. The first part provides a brief review of gender issues in the country.
... See More + The second part presents a gender-based, three-period OLG model that accounts for women's time allocation between market work, child rearing, human capital accumulation, and home production. Bargaining between spouses depends on relative human capital stocks, and thus indirectly on access to infrastructure. The model is calibrated and various experiments are conducted, including investment in infrastructure, conditional cash transfers, a reduction in gender bias in the market place, and a composite pro-growth, pro-gender reform program. The analysis showed that fostering gender equality, which may partly depend on the externalities that infrastructure creates in terms of women's time allocation and bargaining power, may have a substantial impact on long-run growth in Brazil.
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